Can I exit my fixed savings deal early to get a better rate, and what are the fees?

I deposited £25,000 in a two year fixed savings bond in February, with an interest rate of 1.65 per cent.

At the time, that was the best two-year deal on the market so I thought I was making a savvy move. 

I never imagined that interest rates would rise by as much as they have done since then. The best two-year fixed deal now pays almost three times as much interest as I am currently earning. 

I am worried that I am missing a golden moment for savings rates and fear that by the time my two-year deal ends in February 2024, interest rates might have dropped again and I will feel like a fool for using a fixed rate bond when I did.

Is there any way I can exit my current fixed rate deal early?

Locked up: Once in a fixed rate savings account, the money typically cannot be accessed until the end of the fixed rate term

Ed Magnus of This is Money replies: Anyone attempting to time the savings market will have had their work cut out this year.

Over the past 12 months rates have continued to head higher,  and now there are a number of long-term fixed deals paying 5 per cent or more.

The best one-year rates are not far behind, though. The top one-year deal pays 4.5 per cent while the best two-year fix pays 4.8 per cent – both courtesy of Gatehouse Bank.

Even the best easy-access savings rates pay much more than what you are currently getting. The best easy-access deal again being offered by Gatehouse Bank paying 2.8 per cent.

You can check the latest savings rates using our independent best-buy tables.  

By stashing £25k in a two-year fixed rate savings deal paying 1.65 per cent you’ll be set to earn £831 in interest over the two year period. 

However, someone stashing £25k in the best two-year deal today would earn £2,457 over two years.

It’s easy to look at rates now and kick yourself for not waiting. That said, it’s important to remember that there are a lot of savers who by taking no action have fared even worse.

There is still a staggering £267billion stashed away in current accounts earning no interest at all.

A further £461billion is in easy-access deals paying less than 0.5 per cent, analysis by Paragon Bank revealed last month.

Unfortunately there is no easy escape from a fixed rate savings deal as typically no withdrawals are permitted before the end date.

Many providers simply state that no withdrawal is possible, whilst some make it clear that access will only be granted in exceptional circumstances.

For example, Gatehouse Bank states that it is not possible to withdraw funds early unless an account holder dies, becomes mentally incapacitated or bankrupt, or in other exceptional circumstances agreed to by Gatehouse Bank ‘in its absolute discretion’.

Aldermore Bank states: ‘In exceptional circumstances we may permit early withdrawals from or closure of the account prior to the maturity date but this is at our discretion, subject to evidence we will request, and we are not obliged to do so. In the event that we grant permission, we may deduct 90 days’ interest as a condition.’

Timing the market: Some savers are holding off from locking their money into fixed rate deals in the hope that a better deal may be just around the corner

Meanwhile Atom Bank states: ‘Once you’ve paid money into your account, you can’t withdraw it until the end of your product term.

‘The only exception is in cases of financial hardship, which will be assessed on a case-by-case basis and may result in us allowing you to withdraw some or all of the money from your account before the end of the term.’

We spoke to an expert from savings website the Savings Guru to find out whether there is any scope to exit a fixed rate deal early.

Is it possible to exit a fixed term deal early?

The Savings Guru replies: There is no right for savers to be able to access their money once they have signed up for a fixed rate savings account, nor is there any requirement for banks to provide a cooling off period for them – although a few do.

So savers should only put money into a fixed account they definitely don’t need to access during the term.

However, contrary to popular opinion, banks aren’t all bad. If there are exceptional circumstances, banks will listen sympathetically to your case and have discretion regarding where they can do this.

They have policies on what is and isn’t acceptable. For example, if you’ve decided half way through the term you now want to buy a property and use that fixed term savings account to pay the deposit, that’s not going to be enough.

However, if you are dying with cancer and need the money for treatment, that’s almost certainly going to be considered favourably by providers.

Similarly, a saver who has now been made redundant and is going to lose their house because they can’t pay the mortgage or rent is a situation I’d expect banks to be supportive of.

Banks need to log every request and show they have been consistent in their approach and that they aren’t letting savers access money for any reason – and the FCA can ask to see these records to check this.

Ed Magnus adds: It is clear you will be unable to exit your fixed rate savings deal early unless you have serious reasons as to why, such as a critical illness or severe financial problems. 

Exiting early for the purpose of simply grabbing a better deal now that interest rates have risen will not be something your existing savings provider will be prepared to accept. It will therefore mean waiting out your existing deal until February 2024.

In the meantime, try not to worry about what will happen to interest rates and try not to kick yourself for committing too early. At least you acted. 

Many still have their savings sitting in accounts earning much less than 1.65 per cent, and those who held off fixing until now will have missed out on months of interest – albeit at lower rates. 

What about fixed rate cash Isa deals?

The Savings Guru replies: Cash Isas are different – there’s a statutory right for savers to be able to access their Isas, even if fixed, but providers can charge for this.

Typically, banks will charge 90 days interest for breaking a one-year deal, 180 days interest for breaking a two year deal, 270 days for a three-year and 365 days for exiting a five year deal.

It’s therefore expensive to break Isas, and it’s possible you won’t get all your money back, particularly if you break early on in the term.

However, at least savers can get their money back if the worst happens.

This post first appeared on Dailymail.co.uk